Friday, July 24, 2009

The tax simplification project is abandoned - not that it got very far

I don't think many people were surprised last week when the Financial Secretary announced that the Tax Law Rewrite project is to be wound up once the next two Bills become law next Spring.

Originally announced in 1995 the project was launched in former Chancellor Kenneth Clarke’s 1996 Budget speech. It was intended to herald the start of tax simplification and Mr Clarke suggested it was as ambitious as ‘translating War and Peace into lucid Swahili’. The project was forecast to take five years and would, he promised, translate 6,000 pages of Inland Revenue tax legislation into plain English. In the event the translation of Tolstoy's famous novel would have been easier and faster!

The Self Assessment (SA) system that had been planned for even longer was always going to be the SA system - but originally this was to stand for Simplified Assessing. But it was quickly renamed to avoid the inevitable criticism when simplification didn't happen. And it didn't.

Many people have assumed that the Tax Law rewrite project was intended to simplify the tax system. That was never it's objective. It was always focused only on simplifying the language of tax law. The first Rewrite led to the Capital Allowances Act 2001. Since then we have also had
  • The Income Tax (Earnings and Pensions) Act 2003
  • The Income Tax (Trading and Other Income) Act 2005
  • The Income Tax Act 2007
  • The Corporation Tax Act 2009
  • The PAYE Regulations
The list will be completed when the current exercises are complete, leading to:
  • A second Corporation Tax Bill; and
  • The Taxation (International and Other Provisions) Bill, which rewrites provisions that deal mainly with international taxation issues.
This will leave the Capital gains tax legislation in a bit of a mess as those elements relevant to companies will have been rewritten but those elements relevant to other taxpayers will be left in their present state.

In announcing the (sadly as we had expected) early termination of the project, the Financial Secretary said:
"The mainstream direct tax legislation is now far more accessible and easier to apply than the legislation that went before and when the project's next two Bills are enacted, the time will be right to bring this work to an end.

This has proved to be a major task which would not have been possible without the huge contribution and dedication of everyone involved in the project. Many tax professionals in the private sector have given their time and expertise in reviewing and improving the new provisions during their development. Their input, and the dedication and guidance of the project's Steering and Consultative Committees, have been vital in achieving the excellent quality of the rewritten legislation"

In the early days of the project I was still in practice and well remember wondering if all the time and effort devoted to the project was worthwhile. I think we hoped that the issues that were revealed would lead to simplification of the tax system. Sadly this was not to be. It's long been apparent that all we have is better written legislation. It's easier to follow, more logically sequenced and easier to understand.

These are, of course, all worthy outputs - even though it makes it more difficult for experienced practitioners to find their way around the rewritten legislation for a while. But it's easier for those new into the profession to get to grips with the law and that has to be a good thing.

On occasions however newer Government tax initiatives have been legislated so quickly that 'old' style drafting has been used to amend rewritten legislation. It's all quite sad really.

In 1996 Mr Clarke said the rewrite project would "bring the benefits of clarity and certainty to businesses and ordinary taxpayers". I'm not sure that's happened.

Looking back now, what are your views on the Tax Law rewrite project and the new-style legislation?

1 comment:

  1. Whilst I never really got to grips with the logic of the project, and the absurdity of the premise that laws should be written for the layperson (thereby, in practice, only making the laws harder for the experts, being the only people that do actually read the laws), that is not to decry the efforts of the rewrite team who have done all that was asked of them. In the event, with the advent of what must surely be the most incompetent legislature of modern times, the rewrite team were left trying to polish a turd.

    Those responsible for the ITEPA must have been livid when there efforts were on the statute book for merely 9 days before the Act was butchered in the 2003 budget.

    Whilst it is not difficult to dismiss the project as a waste of time, there must still be some conclusions to be reached which will be of use for the future.

    The Tories are still running with the notion that they will introduce an OTS. If an OTS does come about, they might hopefully see the merit in a moratorium on new legislation (genuine emergencies excepted) whilst they seek to achieve simplification. Otherwise, as the past now shows us, the tax code as a whole could end up in a worse state than if no one had bothered.